Video: Katrina money spent and wasted

NEW ORLEANS — The most expensive natural disaster in U.S. history has a complicated money trail.

First, donations. More than $4 billion sent in by individuals and corporations. Much of it already gone.

Take the Bush-Clinton Katrina fund. It's given away most of its$130 million: $40 million to the states of Louisiana, Mississippi, Alabama; $30 million to colleges; $25 million to churches and synagogues.

The American Red Cross has pulled in $2 billion, and, despite worry from some volunteers a year ago that funds were wasted, the charity now says 90 percent of that money has been doled out: providing assistance to families, running shelters and meal trucks, and given to mental health services.

"We helped 1.4 million families in Katrina, Rita and Wilma," says American Red Cross Interim President Jack McGuire. "In 2004, we only had to help 73."

Donations pale in comparison to government funding — $122 billion approved by Congress — eight times that for Hurricane Andrew, including FEMA funds for housing and trailers, medical needs, and that much-criticized hotel program. Recovery officials say the checks are just now reaching some victims.

"Congress appropriated the money in June, we had a plan in place," Walter Isaacson, vice chairman of the Louisiana Recovery Authority, says. "Our president had to sign a bill, the money had to come down from the federal government."

But for all the steps forward in aid, there are steps backward due to fraud — a breathtaking amount of fraud. One government audit this summer found 16 percent of FEMA aid in the first six months was obtained illegally.

A Department of Justice task force has obtained more than 400 indictments.

"We found an estimated $1 billion through February 2006 of fraudulent and improper payments related to the disasters, and this represents tens of thousands of people," says Gregory Kutz of the Government Accountability Office.

Like one man who collected two $2,000 FEMA checks while living in a Louisiana state prison.

Federal officials say there were roughly a thousand other inmates with schemes just like it.